The Patent System Is A Boon -- Not A Drain -- To The American Economy

Mr. Kappos is a former Director of the U.S. Patent and Trademark Office, and a senior adviser to the Partnership for American Innovation, a trade group funded by Apple, DuPont, Ford, General Electric, IBM, Microsoft, and Pfizer.

There is a near daily publication of opinion pieces taking aim at our country’s patent system. Many share these authors’ concerns with frivolous patent cases that waste valuable resources and cause some to question the legitimacy of the patent system. But rhetoric on the subject of patent litigation threatens to overshadow the facts, urging rash actions that risk upsetting the delicate balance of IP. The demonization of IP has gotten far out of hand, and these editorials unfortunately contribute to the unhelpful trend.

Frivolous litigation generally is a problem that’s worthy of attention, but we must keep its impact in perspective and recall that this phenomenon is not unique to patent cases. Critics of IP point to an increase in patent lawsuits — which grew from 1,200 in 1991 to over 5,000 in 2012 — as justifying wholesale changes to the patent system. The argument is convenient in its simplicity, but in the race for an anti-IP conclusion its proponents miss the actual cause underlying the numerical increase: legal reform. The rapid increase in the number of patent lawsuits filed was a side effect of the passage in 2011 of the America Invents Act which created a new requirement that patent holders file separate suits against each defendant where they previously filed one case against multiple defendants. This created the impression of a litigation explosion. But a recent study analyzing 2,521 patent infringement cases in 2010 and 5,195 in 2012 reveals that nearly all of the increase resulted from the changes effected by the AIA. Ironically, the very same parties who called for these changes are now decrying the increase in lawsuits that are a byproduct of the reforms they themselves demanded.

The focus some commentators place on the size of the infringer is not helpful or even sensible; whether an infringer is large or small, it remains an infringer. The Patent Act has never been held to discriminate based on particular qualities of a putative infringer. Patent law aims to deter the act of infringing valid patents, period. It does so for very good reason—this kind of protection incentivizes the very innovation that has allowed companies ranging from tiny start-ups to giants to prosper. There are 40 million American jobs that depend on IP protection. Companies in IP-intensive industries generate over $5 trillion in economic activity per year and are responsible for three quarters of all US exports. And IP fuels not just market incumbents but disruptive startups that promise to be the mass employers of the future—software firms with patents raised nearly $11 million more on average from venture capitalists compared to similar firms without patent assets.

Surely concerns about frivolous patent cases cannot justify curtailing patent enforcement generally along with the risk to innovators who would be unable to protect their technology investment. Can we afford to give non-innovators free license to reap what they have not sown? Why deride as “abusive” operating companies protecting their IP which represents the fruits of their investment in research and development? It sets a dangerous precedent to reflexively accuse an inventor of litigation abuse or, worse, label it a “troll” merely because it chose to assert the rights granted it by our legal system.

The Partnership for American Innovation (PAI) is committed to America’s continued success in a world economy driven by innovation. For the record, PAI stands for an end to frivolous patent cases and the unscrupulous use of baseless demand letter threats. PAI is pro-reform—but pro-smart reform. Frivolous litigation must be addressed in a way that retains the greatness of a patent system that has made this country a global innovation leader. In order for reform to be smart, it must be narrowly tailored to maintain IP’s delicate balance. We need an IP policy rooted in fact rather than rhetoric. Innovation accounts for 18.8% of all jobs in the U.S. economy and 34.8% of GDP. Nothing could be more draining to the American economy in the long term than to give in to hyperbole and diminish the patent system’s power to incent innovation.

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